Challenges Ahead: Egypt's Booming Energy Industry Threatened by Economic Troubles"

Egypt’s energy sector has been making headlines lately, with its potential as an energy hub and the growth in its LNG exports. However, the country’s economic and political situation is still a cause for concern and could impact its energy sector and its standing in the East Mediterranean Gas Forum (EMGF).

The EMGF is a regional intergovernmental organization that includes Egypt, Israel, Cyprus, Greece, Italy, Jordan, and the Palestinian Authority. Its goal is to promote cooperation and development of the region’s natural gas resources. The cooperation between Egypt, Israel, Cyprus, and Greece is key to monetizing and integrating the region’s natural gas reserves, and has received a boost from the fallout of the Russian invasion of Ukraine and Europe’s concerns about energy security.

Egypt is making progress in new gas production, with British energy company Energean reporting the first gas delivery at its offshore Egyptian North El Amriya and North Idku (NEA/NI) projects. The NEA/NI development holds an estimated 39 mmboe of 2P reserves (88% gas) with net working interest production expected to peak at 15 - 20 kboed (88% gas) in 2024. Production will use existing infrastructure and involves the subsea tieback of four wells to Energean's North Abu Qir PIII platform.

Meanwhile, Israel is interested in supplying Italy with natural gas, and has signed a deal with French oil and gas major TotalEnergies and Italian major ENI to start exploring for natural gas within the framework of a landmark maritime border deal with Lebanon. Main Israeli gas exports (and potential volume increases) will be linked or will be flowing via Egypt’s infrastructure and LNG plants.

However, Egypt’s economic situation is still a major concern. Inflation continues to rise, and internal unrest is a threat. The country’s annual headline inflation rate increased to 32.9% in February 2023, compared to 10% in February 2022. Egyptian government subsidies have been draining its budget for decades, and even though subsidies have been cut, they continue to pressure fiscal budgets. Other issues include a still over-valued currency, weak property rights, and an overbearing state and military in strategic economic sectors.

Investment in the country’s hydrocarbon and energy sectors is still strong, but FDI outside of this primary sector is very low. Egypt’s main streams of revenue are still related to remittances, tourism, and its Suez Canal transit fees. A costly defense of the Egyptian pound, lack of structural reforms, and low FDI levels are having a detrimental impact on the country’s economy, and even though GDP is growing, all positivism is wiped away by a surging population.

For average Egyptians, the devaluation of the Egyptian pound against the US dollar has led to an acute dollar shortage, affecting imports and causing a backlog of goods at ports. Analysis shows that around 60% of Egyptians are below the poverty line, in comparison to 30% before COVID. Egypt has asked Gulf Arab countries and the IMF for loans, and while more foreign money is flowing into the country, conditions for the loans are getting tougher.

A renewed economic and financial crisis could destabilize the current Egyptian government and state-structures, and put at risk its flourishing LNG industry. Unilateral decisions made by Cairo to refocus on its own monetization of reserves could be a potential threat to the current cohesion inside of the EMGF.

In conclusion, Egypt’s potential as an energy hub is still strong, and its cooperation with neighboring countries is key to monetizing and integrating the region’s natural gas reserves. However, its economic and political situation is a cause for concern, and could impact its energy sector and its standing in the EMGF. Rational choices